prime minister silvio berlusconi

News Analysis: Italian Deadlock Rekindles Anxiety About Euro Zone

February 27, 2013 by NewsMaker Leave a Comment

Judging by the panic that seized financial markets on Monday and carried over into European stock and bond trading on Tuesday, the answer seems to be no.

After months of calm, investors are nervous, and not only because Italy again seems to have become ungovernable after an inconclusive political election. They are also worried because voters in Italy, the euro zone’s third-largest economy after Germany and France, soundly repudiated government austerity policies that the region’s leaders have long embraced but that have hampered growth in Italy and elsewhere in the euro currency union.

By supporting a protest-vote candidate, the comedian Beppe Grillo, and backing the return of former Prime Minister Silvio Berlusconi, who has vowed to reject austerity, Italians appear to be embracing a return to nationalism, experts say.

Swept aside by the Italian elections was the technocratic government led for the last 13 months by Mario Monti, who has been crucial to an unwritten accord: the European Central Bank promised to help contain the financial contagion that was threatening the euro zone as long as political leaders like him made headway in improving their economies.

The upheaval in Italy means that other euro zone leaders may no longer have a reliable partner in the drive to create a more durable currency union and that Rome’s voice in making European policy will be diminished, for now at least.

“This brings back all the political risk issues” that had seemed to fade from the euro zone, said Jacob Funk Kirkegaard, a senior fellow at the Peterson Institute for International Economics in Washington.

On Tuesday, stocks fell across Europe, with the Euro Stoxx 50 index, a barometer of euro zone blue chips, down 3.1 percent. Investors also continued to dump Italian debt, pushing up the yield on the 10-year sovereign bond 40 basis points to almost 4.9 percent. Portuguese, Spanish and Greek bond prices also fell. Perhaps most significant is the role of the European Central Bank in this period of renewed euro zone uncertainty. The bank rode in as a white knight in September by agreeing to buy large amounts of bonds from countries with shaky finances, including Italy, to calm a contagion of fear then sweeping the euro zone. The bank, run by Italy’s former central banker, Mario Draghi, vowed to do “whatever it takes” to hold the euro union together.

The issue now, experts say, is that Mr. Draghi’s promise was based on an implicit trade-off with euro zone governments. If countries agreed to conditions intended to make their economies perform better, the central bank would buy their bonds to hold down market interest rates.

So far, the bank has not bought any bonds. The mere commitment to do so has been enough to reassure international markets. But Italy’s new political turmoil might prompt investors to test the central bank’s resolve. If so, many experts doubt that the bond-buying program is workable — for Italy, at least.

“Without a stable government, it will be hard to qualify” for the program, said Lucrezia Reichlin, a former director of research at the bank who is now a professor at the London Business School. “Draghi has to have somebody to talk to.”

Europe’s debt crisis is not nearly as dire as it once was. Although Italy’s borrowing costs, as measured by its 10-year bond yield, hit a three-month high on Tuesday of nearly 4.9 percent, that is still nowhere near the 6.5 percent danger zone of last summer.

And despite renewed fears of instability, no one is talking about a breakup of the euro zone — as might have happened last year if such political uncertainty had troubled one of Europe’s most crucial economies. A shift in sentiment took hold last autumn after Mr. Draghi and European politicians, led by Chancellor Angela Merkel of Germany, made clear that the euro union was here to stay — no matter what.

But experts said the Italian vote served as a warning shot that a new round of political instability could be coming in the neighboring large economies of Spain and France. Their leaders have also adopted austerity programs to keep the euro debt crisis from engulfing their economies, despite concerns that the programs are impeding the economic rebound that might help them grow their way out of financial distress.

Liz Alderman reported from Rome, and Jack Ewing from Frankfurt.

Article source: http://www.nytimes.com/2013/02/27/business/global/italian-deadlock-rekindles-anxiety-about-euro-zone.html?partner=rss&emc=rss

Monti Resigns in Italy, but May Seek to Regain Office

December 21, 2012 by NewsMaker Leave a Comment

At a news conference scheduled for Sunday, Mr. Monti is expected to present a political agenda — pro-Europe and pro-fiscal rigor — and call on all parties to endorse it, aides said Friday. Mr. Monti, an economist who has helped restore Italy’s international credibility but has suffered politically for championing a series of tax increases and budget cuts, has steadfastly refused to say whether he will run for prime minister or present an agenda that he hopes parties will endorse. Whether he does run or not, however, he has already radically shifted Italy’s political landscape.

With Italy facing economic uncertainty and sluggish growth, Mr. Monti has emerged as a centrist force in a field previously divided between the center-left Democratic Party of Pier Luigi Bersani, which opinion polls place first, and former Prime Minister Silvio Berlusconi, who has risen in polls since taking to the airwaves with a populist message critical of Mr. Monti’s tax increases.

“He’s de facto a candidate. He is the head politician of this coalition,” said Stefano Folli, a columnist for the business daily Il Sole 24 Ore, referring to a centrist grouping that has been courting Mr. Monti.

On Friday evening, Mr. Monti handed in his resignation to President Giorgio Napolitano, who in a tough speech to lawmakers last week lamented the “brusque” end of the government and Parliament’s failure to carry out significant structural changes in Italy’s encrusted economy.

Mr. Napolitano is soon expected to dissolve Parliament, opening a hard-fought campaign amid rising unemployment, taxes and populism. Mr. Monti will stay on as caretaker prime minister until a new government is formed. In that time, he is expected to retain the power to pass emergency legislation.

“He’s already a senator for life, so he doesn’t have to become a candidate in the technical way,” Mr. Folli added.

After losing the support of Mr. Berlusconi’s People of Liberty party this month, Mr. Monti said that he would step down after the budget was passed. On Friday, lawmakers voted 373 in favor and 67 against with 15 abstentions in a confidence vote over the budget, which stipulates spending cuts of $4.8 billion through 2015.

Mr. Monti could run as a candidate or endorse a centrist alliance that includes a veteran political party, the Union of Christian Democrats, and Toward the Third Republic, a fledgling civic movement led by the chairman of Ferrari, Luca Cordero di Montezemolo. If Mr. Monti lends his name to the centrists, he is expected to draw moderates from Mr. Berlusconi’s party. Mr. Monti also has the implicit support of the Catholic Church, which is crucial to the survival of any Italian government.

After weeks of wavering, Mr. Monti seems to have decided to stay involved in Italian politics after other European leaders, concerned about the prospect of an increasingly populist Mr. Berlusconi, urged him to stay in the picture.

Last week, members of the European People’s Party, a group of center-right parties across Europe, asked the unelected Mr. Monti to attend a summit in Brussels, which Mr. Berlusconi attended as the head of Italy’s largest center-right party. “I can say that there was massive support from E.P.P. members that Monti should remain at the helm of Italy,” said Kostas Sasmatzoglou, the group’s spokesman.

“It was Europe pushing him to continue,” Mr. Folli, the columnist, said. “Germany already has Hollande,” he said, referring to France’s Socialist prime minister, François Hollande. “It doesn’t want another country to go to the left, to go back on fiscal rigor.”

He added: “It can have Bersani, but Bersani ‘corrected’ and supported by Monti.”

Indeed, if he lends them his support, Mr. Monti and the centrist groupings are not expected to get more than 15 percent of the vote. Mr. Bersani’s Democratic Party is expected to place first, but without enough votes to govern in both houses even if it allies with the smaller Left Ecology and Freedom party. It remains to be seen if the center will take votes away from Mr. Berlusconi or Mr. Bersani.

On Thursday, Mr. Monti was widely perceived to have begun his campaign with a politically calculated speech at a Fiat automotive plant in southern Italy. With Fiat chairman Sergio Marchionne by his side, he said that Italy needed to stay the course on structural changes. The speech effectively challenged Mr. Bersani, a moderate who will most likely have to tack further left.

Mr. Monti came to power in November 2011, replacing Mr. Berlusconi amid global financial panic. He helped burnish Italy’s image abroad, but effectively raised taxes, worsening Italy’s recession. Although populists have depicted Mr. Monti and his government as a puppet of Europe and the banks, many Italians support him as a needed change from politics as usual.

“I prefer Monti to Berlusconi or any other politician, even if he left us in our underwear,” said Annalisa di Piero, 50, a costume designer and stylist, referring to the tax increases that have left Italians with less in their pockets in the holiday shopping season. “I just paid my property tax, but I still prefer him to these other clowns.”

Gaia Pianigiani contributed reporting.

Article source: http://www.nytimes.com/2012/12/22/world/europe/monti-resigns-in-italy-but-may-run-again.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: political landscape, prime minister silvio berlusconi, stefano folli

Signs of Broad Contagion in Europe as Growth Slows

November 16, 2011 by NewsMaker Leave a Comment

Published data showed that the euro zone economy grew marginally in the third quarter, kept above water by France and Germany, in what analysts interpreted as probably a last gasp before debt problems dragged the Continent into recession.

Traders said the big moves in the bond markets came as investors continued to shed exposure to European debt.

With few buyers, interest rates on Italian government bonds again rose above 7 percent — the kind of market pressure that last week led to the ouster of Prime Minister Silvio Berlusconi.

But they also continued to increase in France, Spain and Belgium. They also moved upward in Finland, Austria and the Netherlands, which have relatively strong underlying financial positions and until recently had mostly been spared the full effects of the financial crisis.

“The concern is spilling over to the other candidates that could be next for the domino effect behind Italy,” said Millan Mulraine, an interest rate strategist at TD Securities in New York. “The ubiquitous nature of the increase in yields suggests that the problem is spreading well beyond the troubled peripheral countries.”

In recent weeks, the European Central Bank has been regularly buying government bonds to try to push down interest rates. But Mr. Mulraine said the bank bought a smaller amount than usual on Tuesday.

Without the central bank’s usual presence in the markets, bond prices fell and yields rose, and investors appeared to worry that a widening circle of European nations could be dragged into the Continent’s problems.

“While France has for weeks been under some market pressure, with fears over the country’s AAA-rating to the fore, the likes of the Netherlands and Finland had proved immune,” analysts at Daiwa wrote in a research note. “That no longer appears to be the case.”

Yields jumped a quarter of a percentage point in Spain, to nearly 6.35 percent, and about the same in France, to nearly 3.7 percent. They spiked even more in Italy and crossed the 7 percent level, which economists consider unsustainable. The gap between those rates and Germany’s 1.8 percent yield also widened to levels that some analysts saw as alarming.

Analysts said they expected the central bank to return to the markets soon, and with a much more aggressive program of bond buying, to put a ceiling on rates.

Compounding euro zone anxieties was a report Tuesday that gross domestic product for the region barely grew 0.2 percent from July through September, compared with the previous three months. That was the same growth rate as in the previous quarter.

In contrast, the United States economy grew by 0.6 percent in the third quarter from the second, while the Japanese economy grew 1.5 percent.

The data from Eurostat, the statistical office of the European Union, did nothing to alter a consensus among economists that euro area output had already begun to decline since September.

Anxiety about the sovereign debt crisis has led businesses and consumers to cut spending, and government austerity programs have contributed to deep recessions in countries like Greece and Portugal.

Economists define a recession as at least two consecutive quarters of declining output.

The third-quarter figures “have little bearing on the bigger question — namely how is the sovereign debt crisis going to be resolved and at what collateral damage to the real economy?” Jens Sondergaard, senior economist for Europe at Nomura, said in a note to clients.

The huge risk facing Europe is that debt problems and slower growth will create a downward spiral that policy makers may not be able to stop.

If economies slow, then government tax revenue will decline. That, along with higher borrowing costs, would increase fears that countries like Italy may not be able to service their debt. In that cycle, confidence and growth suffer further.

François Cabau, an analyst at Barclays Capital, said in a note Tuesday that if business confidence continued to fall during the rest of 2011, the downturn “could prove to be larger than we currently expect, depressing private domestic demand even further.”

Ample data has pointed to an impending slowdown in the euro area, including reports last week of declines in industrial production and retail sales.

The European Commission, citing painful budget-balancing measures that will weigh on output, cut its growth forecast last week for the 17 euro zone nations, to 0.5 percent in 2012, and predicted that Greece’s recession would deepen.

But even that gloomy forecast is starting to seem too optimistic.

Germany, the largest economy in Europe, has been bucking the downward trend so far. Its economy grew by 0.5 percent in the third quarter, compared with 0.3 percent in the second, according to the data released Tuesday.

French growth continued to hold up in the third quarter, but that is not expected to last, either.

Olli Rehn, the European commissioner for economic and monetary affairs, said last Thursday that the European Union’s economic recovery had “now come to a standstill, and there is a risk of a new recession.”

Article source: http://feeds.nytimes.com/click.phdo?i=71988385c835b7813ce412b5274a3477

Filed Under: Business News Tagged With: financial crisis, prime minister silvio berlusconi, silvio berlusconi

Europe Presses Greek Parties to Commit to Bailout Terms

November 8, 2011 by NewsMaker Leave a Comment

Though the ministers said they welcomed the deal to form a coalition government in Greece, European officials insisted that political consensus over a tough austerity program was a precondition for payment of the loan. Mr. Juncker said the ministers had “underlined the importance of sustained cross-party support for the program in Greece.”

“We have been calling for a coalition of national unity,” added Olli Rehn, the European commissioner for economic and monetary affairs. “It is essential that the new government will express a clear commitment on paper, in writing.”

He added, however, that provided the assurances were forthcoming, the loan to Greece could be disbursed this month. That could be done by teleconference and without a formal meeting of finance ministers, he said.

The meeting on Monday in Brussels was dominated by the political dramas unfolding in Greece and Italy. Mr. Juncker urged the authorities in Rome to begin the economic reform measures pledged by Prime Minister Silvio Berlusconi in a letter to European Union leaders last month. “What we are expecting from Italy is that Italy will be implementing all the measures which have been announced in Silvio Berlusconi’s letter,” Mr. Juncker told reporters.

The ministers also discussed a seven-page document outlining technical options for quickly expanding the firepower of their bailout fund, including one option that would hope to raise investment from outside Europe. The Dutch finance minister, Jan Kees de Jager, said the discussions remained a “work in progress.”

Officials are struggling to resolve technical details over how the 440 billion euro rescue fund could be leveraged to 1 trillion euros. The document did not refer to the difficulties European leaders have faced in persuading emerging countries to support their plans.

Under one model, the euro zone’s bailout fund would offer first loss insurance to buyers of some new issues of sovereign bonds. The other would set up “co-investment funds,” which would purchase bonds on the primary or secondary markets after attracting external investment.

But fears are growing that, even if achieved, 1 trillion euros will be insufficient if Italy fails to restore confidence in its economic management and cannot reduce its soaring borrowing costs.

The loss of market confidence in the euro zone was demonstrated Monday when its bailout fund, the European Financial Stability Facility, raised 3 billion euros via 10-year bonds to help finance its rescue of Ireland. The yield to be paid to investors was 3.591 percent, much higher than the 2.825 percent for five-year bonds issued in June.

“The yield was the highest we have had so far,” said Klaus Regling, the head of the bailout fund. “In light of the difficult market conditions, it is understandable that yields have gone up.”

Article source: http://feeds.nytimes.com/click.phdo?i=ee984d0dbdf4ee55f2378456f042c100

Filed Under: Business News Tagged With: european union leaders, olli rehn, prime minister silvio berlusconi

Debt Contagion Threatens Italy

July 12, 2011 by NewsMaker Leave a Comment

But the contagion that started in the euro zone’s smaller countries is suddenly moving to some of its largest. As Greece teeters on the brink of a default, the game has changed: Investors are taking aim at any country suffering from a combination of high debt, slow growth and political dysfunction — and Italy has it all, in spades.

In recent days, Italy has become Europe’s next weak link after Greece, Ireland, Portugal and Spain, harmed in particular by a power struggle between Prime Minister Silvio Berlusconi and his finance minister, Giulio Tremonti. The dispute threatens to turn the euro zone’s third-largest economy, after Germany and France, into one of its biggest liabilities.

On Monday, the Italian government struggled to rein in the tensions, as fears rose that political paralysis could make it harder for Italy to embrace the austerity demanded by outsiders to reduce one of the highest debt levels in the world. European policy makers also sought to figure out how they would put out a bigger fire if Italy were to succumb.

Those jitters hit stock markets on Monday not just in Italy, where the major index fell nearly 4 percent, but across much of Europe as well, with the markets in France and Germany off more than 2 percent each. The United States was affected, too, with the Standard Poor’s 500-stock index down about 1.8 percent on European debt fears and worries about the showdown in Washington over raising the United States debt limit.

“Italy is too big to fail,” said Moisés Naím, a senior associate in the international economics program at the Carnegie Endowment in Washington. “If Italy really gets hit by contagion because of political mismanagement, it would be a threat not only to the euro zone, but to the global economy.”

Political soap operas in Italy — especially those featuring Mr. Berlusconi — are nothing new. Nor do they usually matter much to financial markets, even after the debt crisis hit Europe. The widespread problems in Italy’s economy, which has been sluggish for the better part of a decade, also rang few alarm bells.

What’s more, Italy’s banks are sound; they never speculated in a housing bubble. The current annual budget deficit is low, at about 4.6 percent of gross domestic product. And while Italy issues the largest amount of bonds of any euro zone country, Italians own about half the debt, making it less vulnerable to the follies of financial markets.

But with interest rates rising, Italy’s economy is not growing fast enough to cover an accumulated debt load of 120 percent of gross domestic product, the second-highest in Europe, after Greece. The International Monetary Fund expects growth to pick up only slightly, to 1.3 percent in 2012.

In a sign of how quickly things have turned against the country, the stock market regulator imposed emergency rules on Monday against speculation after shares in Italian banks slumped for a fifth consecutive session. The cost of insuring Italy’s sovereign debt against default surged to a record high, and the interest on its 10-year bond leaped to a record 5.67 percent.

While that is still well below what Greece pays, analysts say Italy will have serious problems if its borrowing costs exceed 6 percent.

“Italy is a banana republic that didn’t depend so much on foreign capital in the past, but now it does, and markets are less forgiving,” said Daniel Gros, the director of the Center for European Policy Studies in Brussels. “Italy is in the danger zone; that is quite clear now.”

Italy tends to function best in crisis management mode, analysts say, and Mr. Berlusconi has begun to acknowledge the seriousness of the dangers facing the country after a phone conversation with the German chancellor, Angela Merkel, on Sunday.

Today, Mr. Berlusconi “understands the risks objectively because the situation is dramatic,” said Stefano Folli, the chief political columnist for the financial daily Il Sole 24 Ore.

Article source: http://feeds.nytimes.com/click.phdo?i=82b8c84b3e9261d90606ad6bb5f9970f

Filed Under: Business News Tagged With: carnegie endowment, power struggle, prime minister silvio berlusconi

Italy Evolves Into E.U.’s Next Weak Link

July 11, 2011 by NewsMaker Leave a Comment

But the contagion that started in the euro zone’s smaller countries is suddenly moving to some of its largest. As Greece teeters on the brink of a default, the game has changed: Investors are taking aim at any country suffering from a toxic combination of high debt, slow growth, and political dysfunction — and Italy has it all, in spades.

In recent days, Italy has become Europe’s next weak link after Greece, Ireland and Portugal and Spain, harmed in particular by a power struggle between Prime Minister Silvio Berlusconi and his finance minister, Giulio Tremonti. The dispute threatens to turn the euro zone’s third-largest economy, after Germany and France, into one of its biggest liabilities.

Those jitters hit stock markets on Monday not just in Italy, where the major index fell nearly 4 percent, but across much of Europe as well, with the markets in France and Germany off more than 2 percent each. The United States was affected, too, with the Standard Poor’s 500-stock index down about 1.8 percent in midafternoon trading on European debt fears and worries about the showdown in Washington over raising the U.S. debt limit.

Political soap operas in Italy — especially those featuring Mr. Berlusconi — are nothing new. Nor did they usually matter much to financial markets, even after the debt crisis hit Europe. The widespread problems in Italy’s economy, which has been sluggish for the better part of a decade, also rang few alarm bells.

What’s more, Italy’s banks are sound; they never speculated in a housing bubble. The current annual budget deficit is low, at around 4.6 percent of its gross domestic product. And while Italy issues the largest amount of bonds of any euro zone country, Italians own about half the debt, making it less vulnerable to the follies of financial markets.

In a sign of how quickly things have turned against the country, the stock market regulator imposed emergency rules on Monday against speculation after shares in Italian banks slumped for a fifth straight session. The cost of insuring Italy’s sovereign debt against default surged to an all-time high, and the interest on its 10-year bond leaped to a record 5.67 percent.

While that is still well below what Greece pays, analysts say Italy will have serious problems if its borrowing costs rise above 6 percent to reflect the risk.

But Italy traditionally functions best in crisis-management mode, analysts say, and Mr. Berlusconi has begun to acknowledge the seriousness of the dangers facing the country after a phone conversation with the German chancellor, Angela Merkel, on Sunday.

Today, Mr. Berlusconi “understands the risks objectively because the situation is dramatic,” said Stefano Folli, the chief political columnist for the financial daily Il Sole 24 Ore.

Article source: http://www.nytimes.com/2011/07/12/business/global/italy-evolves-into-eus-next-weak-link.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: euro zone, political mismanagement, prime minister silvio berlusconi